Home sales look to be slowing down in coming months

Sales of existing homes could bounce back later this year, but the outlook for March and April isn’t great, according to data released Thursday.

A gauge of pending home sales, which measures contract signings, fell in February for an eighth month of slumping, according to the National Association of Realtors. The series is used as a leading indicator for completed deals on home purchases, which typically occur within one or two months.

Notably, as seen in the above chart, the pending gauge does a good job of broadcasting future trends for existing-home sales.

“The two series tend to move together fairly tightly over time but obviously, there is enough noise that the month-to-month movements do not always line up,” said Stephen Stanley, chief economist at Pierpont Securities.

The pace of existing-home sales hit a seasonally adjusted annual rate of 4.6 million last month, down 14.5% over the eight months from the series’ most recent peak, which was hit in July. Looking at how the pending gauge performed over the eight-month period that started in June, that barometer also lost 14.5%.

Given that the pending gauge dropped to a seasonally adjusted annual rate of 93.9 last month, hitting the lowest pace since October 2011, one can expect home-sale closings to slow as well.

The good news is that housing-market activity delayed by a particularly harsh winter could show up in the coming months. But what concerns economists is that the weather clearly isn’t the only factor hitting the housing market. The chart shows that the rates of pending and existing-home sales have been slowing since the summer. A large chunk of those drops can be attributed to the rising home prices and mortgage rates that cut affordability, trends that will likely persist this year. A low inventory of homes available for sale has also curbed purchases.

Still, even though rates for fixed-rate mortgages have increased about one percentage point over the past year, home loans remain relatively cheap. In addition, home-price growth is expected to slow down this year. So once prospective buyers get over the disappointment of missing ultra-low rates and rock-bottom prices, they may decide make an offer, especially as more homes come on the market.